Financial Instability / Credit Crunch Direct Result of Dems' Betrayal of New Deal Legacy

Totally shocking, if completely UN-surprising, NYT piece about how US "financial institutions" --

having grabbed obscene profits while the going SEEMED to be good --

are now, typically, going overboard in the opposite direction,

i.e., tightening credit beyond all reason, even for reasonable risk companies that are doing well ...

While the MAIN responsibility, of course, lies with the BCRHB claque,

the supine Democrats -- who have willingly gone along with every insane idea that the RPBs and their "financial industry" cronies have come with --

due to a combination of ideational flacidity AND their refusal to challenge an out-of-control campaign finance system that could easily be re-formed with some simple regulatory changes in television political regulations --

are ALMOST as responsible ... not least for having completely abandoned every shred of their once intimate and structural commitment to the principles of an intelligently interventionist New Deal state ...

So now, despite the Federal Reserve's constant cutting of interest rates in a vain attempt to prevent the credit crunch that is already well underway,

the economy that was allegedly "flourishing" under the pre-New Deal "let the market determine EVERYTHING" regime is now collapsing ...

in a way that seems likely to keep the US economy staggering for the foreseeable future ...

And for all the blather about change, there seems less and less reason every day to think that Baruch Obama is going to make any appreciable difference in these KEY matters of political economy ...

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring. ...

The scarcity of credit has intensified the strains on the economy by withholding capital from many companies,

just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding.

“Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.

“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled. “This is why God made banks, for this kind of transaction. This is going to slow down the American economy.”

Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs.

By mid-June, bank credit was declining at an annualized pace of more than 6 percent.

That is a drop of nearly $150 billion, an amount much larger than the value of the tax rebates the government has sent to households this year in an effort to spur economic activity. ...

But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy.

The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.

The financial system is not going along:

As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.

Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.

“There’s been a lot of disruption in the credit market, and a lot of traditional lenders have really tightened up,” said Gregory Goldstein, president of Macquarie Equipment Finance, which leases computer gear and other technology to companies.

“Before, some of the standards they lent on were weak, but we think they have overshot and gone too far on the other end.”